While roll-up investment approaches - stitching together smaller businesses in typically fragmented industries to build a larger company - have been a feature of the LBO industry for decades, they have only begun filtering into early-stage venture capital in notable ways in the last handful of years. As Thrasio, Perch, and similar (largely Amazon-focused) aggregators began to prove out the potential of generating venture-scale returns in roll-up format, venture capital began to pour into the space. Given our firm’s roots in both operations and private equity, we appreciated the core equity value creation logic of these businesses - typically found in some combination of scale-based multiple arbitrage, significant asset-level operating improvement / optimization, and attractive acquisition dynamics (deferred purchase price, financial leverage, reinvestment of free cash flow). However, we elected not to make an investment early in our firm’s life in any player pursuing these crowded, traditional applications as (i) the surplus of capital entering the space led to elevated acquisition multiples, reducing prospective returns, (ii) the volume of new entrants given low barriers to entry combined with the relative lack of differentiation we observed were clear structural concerns and (iii) the frenzied pace of acquisitions indicated
Rolled Up: Announcing Our Investment In Elevva
Rolled Up: Announcing Our Investment In…
Rolled Up: Announcing Our Investment In Elevva
While roll-up investment approaches - stitching together smaller businesses in typically fragmented industries to build a larger company - have been a feature of the LBO industry for decades, they have only begun filtering into early-stage venture capital in notable ways in the last handful of years. As Thrasio, Perch, and similar (largely Amazon-focused) aggregators began to prove out the potential of generating venture-scale returns in roll-up format, venture capital began to pour into the space. Given our firm’s roots in both operations and private equity, we appreciated the core equity value creation logic of these businesses - typically found in some combination of scale-based multiple arbitrage, significant asset-level operating improvement / optimization, and attractive acquisition dynamics (deferred purchase price, financial leverage, reinvestment of free cash flow). However, we elected not to make an investment early in our firm’s life in any player pursuing these crowded, traditional applications as (i) the surplus of capital entering the space led to elevated acquisition multiples, reducing prospective returns, (ii) the volume of new entrants given low barriers to entry combined with the relative lack of differentiation we observed were clear structural concerns and (iii) the frenzied pace of acquisitions indicated